It Takes a Village

By William Davis

According to a loose consensus, and by loose we mean a Thesaurus-full of synonyms for arbitrary, bull markets are ongoing rallies that run to a cumulative 20 percent gain without falling 20 percent along the way. A random definition, to be sure, but once the tradition bell rings on Wall Street, it’s hard to un-ring.

The Dot-Com Bull Market ran from October 1990 to March 2000 and gained 417%

Which is why most (not all) of the Street is all atwitter these days. Seems that since the S&P 500 hit a 13-year low way back in 2009, the market’s now gone nine years, five months and 19 days without dropping the “required” 20 percent. Since most (not all) of the pundit class are calling it for what it subjectively is, you’ve probably heard this is the longest-running bull market in history.

The Peacetime Bull Market ran from June 1949 to August 1956 and gained 267%

Whatever you call it today, it’s a good bet nobody called “it” at all in 2009. Why? Because what we now think of as the Financial Crisis of 2007/2008 had just eviscerated investors’ wealth, cutting many portfolios, retirement accounts included, literally in half. Companies, too, were battling for survival, some ultimately without success. Few noticed when the S&P 500 bottomed out at a miserable 667 on March 9th.

The Pre-Inflation Bull Market ran from October 1974 to November 1980 and gained 126%

Far more observable, however, were the Fed’s post-crash efforts toward keeping long-term interest rates low and boosting the tanking economy. Intentionally or not, the resultingly skinny bond market drove many investors back in to equities, where they had hopes for better returns. Since then, investors that stuck with it have endured the eurozone debt crisis, a United States’ credit rating downgrade, and tanking oil prices among other things. This year alone, folks owning stocks have survived inflation worries and trade tensions.

The Pre-Black-Monday Bull Market ran from August 1982 to August 1987 and gained 229%

Through it all, though, the markets never dipped the arbitrary 20 percent. And in the 3,459 days since touching bottom, the S&P 500, which closed last week at 2,901, has more than quadrupled. Along the way, Apple became the first company to reach $1 trillion in value, Google’s share price climbed nearly 600 percent, and Jeff Bezos’ net worth grew larger than most of the world’s national GDP.

The Housing Bubble Bull Market ran from October 2002 to October 2007 and gained 102%

Given the direct correlation between the length of a bull market and the number of its skeptics, it’s no surprise this ol’ bull has more than its share. One particularly crabby economist was recently heard to say that “…stocks really are just trading off nonmarket dynamics that would have made Grigory Potemkin very proud.” Our grumpy observer was, of course, cynically referring to the Russian military leader who constructed fake villages simply to impress visitors. Hmm. Sounds like a guy who wouldn’t know a real village if he were in one…even for nine and a half years.

What really good financial writers are saying.…

“Many investors think of behavioral economics as a window onto a world in which almost everybody else seems to be making foolish financial decisions. Instead, we’d be better off thinking of it as a mirror that shows how we ourselves make foolish financial decisions. Perhaps, that way, we could avoid some of our own errors.”

“While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating.”

Jay Powell, Chairman of the Federal Reserve

What the facts are saying…

The start of September marks the beginning of the stock market’s worst month. The S&P 500 has finished lower in 50 out of 91 Septembers, with an average return of negative 1%.

Roughly 48% of the world’s $30 trillion in cross-border loans are priced in the U.S. currency, up from 40% a decade ago. Exchange-rate fluctuations affect the ease of servicing that debt, a key concern in the current emerging markets rout.

Small stocks have outperformed recently, but the big ones have too. Apple, Amazon, Alphabet, and Microsoft, the four largest stocks in the S&P 500, are up an average of 22% since the index hit a record high in late January.

The S&P 500 has been rising faster than the earnings expectations of the companies in the index. The forward price-to-earnings ratio is now at its highest since February.

Argentina lifted its key interest rate to 60% from 45% to stop a decline in its currency. It didn’t work: the peso finished with a 12.2% loss against the dollar.

What folks with ears to the Street are saying…

“Riskier corporate debt may face a very bumpy ride this year. One way to play this is to bet against an exchange-traded fund that buys U.S. leveraged loans, the risky debt behind takeovers and private-equity deals.”

— Heard on the Street Columnist Paul J. Davies

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